Certified EO Blog
The Simple Concept That Turns Employee-Owners Into Millionaires
March 10, 2023
Last month we looked at three inspiring stories of employee-owners building life-changing wealth. We saw how regular grants of company stock at companies like WinCo Foods and Springfield Remanufacturing Company helped front-line workers build eye-opening account balances, in some cases over a million dollars. These stories are incredible, and perhaps even sound too good to be true. But what if I told you that these employee-owners were able to build such large amounts of wealth by leveraging the same force that billionaires like Warren Buffet used to build their wealth? The magic behind employee ownership is the magic behind all great fortunes: compound growth. In this post we’re going to take a peek under the hood at the surprising power of compound growth including: Warren Buffet’s Journey to Twelve Figures What Exactly is Compound Growth? Compound Growth Helps Employee-Owners Build Wealth The Key Ingredient is Time You’re Only Successful if Your Company is Successful This article has two big takeaways for employee owners. First, the most important factor in building wealth with employee ownership is giving compound growth plenty of time to work. Second, the better your company does, the faster your wealth will grow. Even small improvements in company performance add up to big changes thanks to compounding. Warren Buffet’s Journey to Twelve Figures Compound growth is simple to understand but can be difficult to appreciate. Imagine if I proposed the following deal: today you hand me a dollar, and a year from now I’ll come back and give you that dollar along with two dimes. Would you do it? If you’re like most people, that deal doesn’t sound exciting. But that deal, executed repeatedly and at scale, is how Warren Buffet became one of the richest people in the world. If you don’t know about the “Oracle of Omaha,” Warren Buffett is a legendary value investor with a net worth of roughly $108 billion. Buffett built his wealth as the majority owner of Berkshire Hathaway, a holding company that he took over in 1965. According to publicly available shareholder letters, over the next 50 years, Berkshire Hathaway’s stock grew at a compound growth rate of 21.6% a year. To put it another way, a single dollar invested alongside Buffett would have grown to $18,262 (source: Berkshire Hathaway Letters to Shareholders). That’s the power of compound growth. What Exactly is Compound Growth? In terms of investing, compound growth is when invested money earns returns on both the original amount as well any accumulated growth. Here’s a simple example. Say you invest $2,000 and earn a return of 10% per year. In the first year, you'll earn $200, bringing your total to $2,200. In the second year, you'll earn returns on the full $2,200, which comes out to $220. This includes $200 of growth from the initial $2,000 investment plus $20 from the $200 of growth from the first year. That $20, the growth made solely from prior growth, is your first bit of compounding. Compound growth means your money is growing at an accelerating rate. This effect starts small, but it becomes more and more powerful with time. Compound Growth Helps Employee-Owners Build Wealth Employee-owners tap into compound growth by owning shares of company stock. Their stock has a value determined by their company’s share price, which changes each year based on the value of the business. If the company’s share price goes up over multiple years, then the value of the stock grows with compound growth. While practices vary, most employee-owners receive an allocation of company stock each year paid for out of company profits. Annual allocations supercharge an employee-owners growth by building the account value in the early years while compound growth is still picking up steam. Building on the example above, say an employee-owner receives an allocation of $2,000 of stock at the end of each year and their company’s share price grows at 10% annually. Here’s how their account balance would grow initially: Our employee-owner sees $200 of share price growth in year 2 and their first compound growth in year 3. After 5 years of ownership, allocations add up to $10,000, over 80% of the total account value. In general allocations make up the bulk of an employee-owner’s account value early on, but that changes dramatically with time. The Key Ingredient is Time Let’s check in on that same employee-owner after compound growth has had time to work its magic. Let’s assume the allocations continue at $2,000 a year and the share price continues to grow at 10% annually: The first thing to notice is that our employee-owner’s total account value is accelerating. After 20 years they have over $110,000 in their account. After 25 years, they’re almost at $200,000. And after 30 years, they’re over $320,000! This acceleration is the tell-tale sign of compound growth. This example also shows how compound growth ends up driving most of the wealth building. Allocations continue, but they become less and less important as compound growth ramps up. By the end of their career, our employee-owner has accrued over 80% of their total account value from share price growth, exactly the reverse of what we saw after the first 5 years! You’re Only Successful if Your Company is Successful We started out talking about employee-owners becoming millionaires, but so far the highest account value we’ve shown is under $350k. This is where the share price growth rate factors in. After time as an owner, the next most important factor for employee-owners looking to build wealth is the success of their company. In general, the more successful a company is, the faster its share price will grow. To demonstrate the importance of company success, let’s look at how our employee-owner’s account value after 30 years changes with the rate of share price increase: For context, a 10% average annual share price is roughly what the public stock markets have returned over time. But it’s certainly possible for a successful private company to outperform this benchmark. Increased company success has a dramatic effect on our employee-owner’s account balance. Roughly speaking, a 1% annual increase in the company share price leads to changes in final account value of between $100,000 to $200,000. That’s huge! One very important caveat to all this is that no company’s share price is guaranteed to go up, and it’s possible that a series of events could lead to any company going bankrupt, which would make those company’s shares worth zero. For employee-owners, this risk is offset by the common practice that shares are paid for out of company profits, with the employee-owners not putting in any of their own money. And of course no financial gain comes without risk. What does it take for our employee-owner to become a millionaire? If their company is able to achieve a 20% rate of return over 30 years, they would retire with well over $2 million. Not every company will accomplish this, but it’s not without precedent. WinCo Foods managed to grow at roughly this rate from 1986 to 2014, a 28-year period. The minimum required performance for our employee-owner to see a seven-figure account balance is 16% annual share price growth over 30 years. Make no mistake, that is a solid performance that not every company can accomplish. But I personally have spoken to multiple employee-owned companies that have turned in this record, or better. Ultimately it comes down to how the company performs, which is something that every single employee-owner can impact through their ideas and their effort. Connecting the success of the company and the success of the employee through wealth building is perhaps the biggest reason we see employee ownership as a win-win for business and people. Note: The examples provided in this article are solely for illustrative purposes only and should not be relied upon in any way, nor should be construed as an appraisal, legal, financial, tax, or other professional advice. This article was originally posted on 3/10/23 and was updated on 7/11/23 to update the discussion of “compound interest” to “compound growth” which more accurately describes wealth building at stock-based employee-owned companies. What Exactly is Compound Interest? Compound Interest Helps Employee-Owners Build Wealth The Key Ingredient is Time You’re Only Successful if Your Company is Successful This article has two big takeaways for employee owners. First, the most important factor in building wealth with employee ownership is giving compound interest plenty of time to work. Second, the better your company does, the faster your wealth will grow. Even small improvements in company performance add up to big changes thanks to compounding. Warren Buffet’s Journey to Twelve Figures Compound interest is simple to understand but can be difficult to appreciate. Imagine if I proposed the following deal: today you hand me a dollar, and a year from now I’ll come back and give you that dollar along with two dimes. Would you do it? If you’re like most people, that deal doesn’t sound exciting. But that deal, executed repeatedly and at scale, is how Warren Buffet became one of the richest people in the world. If you don’t know about the “Oracle of Omaha,” Warren Buffett is a legendary value investor with a net worth of roughly $108 billion. Buffett built his wealth as the majority owner of Berkshire Hathaway, a holding company that he took over in 1965. According to publicly available shareholder letters, over the next 50 years, Berkshire Hathaway’s stock grew at a compound growth rate of 21.6% a year. To put it another way, a single dollar invested alongside Buffett would have grown to $18,262 (source: Berkshire Hathaway Letters to Shareholders). That’s the power of compound interest. What Exactly is Compound Interest? Compound interest is when invested money earns interest on both the original amount as well as the interest already earned. Here’s a simple example. Say you invest $2,000 at an interest rate of 10% per year. In the first year, you'll earn $200 in interest, bringing your total to $2,200. In the second year, you'll earn interest on the full $2,200, which comes out to $220. This includes $200 of growth from the initial $2,000 investment plus $20 from the $200 of growth from the first year. That $20, the growth made solely from prior growth, is your first bit of compound interest. Compound interest means your money is growing at an accelerating rate. This effect starts small, but it becomes more and more powerful with time. Compound Interest Helps Employee-Owners Build Wealth Employee-owners tap into compound interest by owning shares of company stock. Their stock has a value determined by their company’s share price, which changes each year based on the value of the business. If the company’s share price goes up over multiple years, then the value of the stock grows with compound interest. While practices vary, most employee-owners receive an allocation of company stock each year paid for out of company profits. Annual allocations supercharge an employee-owners growth by building the account value in the early years while compound interest is still picking up steam. Building on the example above, say an employee-owner receives an allocation of $2,000 of stock at the end of each year and their company’s share price grows at 10% annually. Here’s how their account balance would grow initially: Our employee-owner sees $200 of share price growth in year 2 and their first compound interest in year 3. After 5 years of ownership, allocations add up to $10,000, over 80% of the total account value. In general allocations make up the bulk of an employee-owner’s account value early on, but that changes dramatically with time. The Key Ingredient is Time Let’s check in on that same employee-owner after compound interest has had time to work its magic. Let’s assume the allocations continue at $2,000 a year and the share price continues to grow at 10% annually: The first thing to notice is that our employee-owner’s total account value is accelerating. After 20 years they have over $110,000 in their account. After 25 years, they’re almost at $200,000. And after 30 years, they’re over $320,000! This acceleration is the tell-tale sign of compound growth. This example also shows how compound interest ends up driving most of the wealth building. Allocations continue, but they become less and less important as compound interest ramps up. By the end of their career, our employee-owner has accrued over 80% of their total account value from share price growth, exactly the reverse of what we saw after the first 5 years! You’re Only Successful if Your Company is Successful We started out talking about employee-owners becoming millionaires, but so far the highest account value we’ve shown is under $350k. This is where the share price growth rate factors in. After time as an owner, the next most important factor for employee-owners looking to build wealth is the success of their company. In general, the more successful a company is, the faster its share price will grow. To demonstrate the importance of company success, let’s look at how our employee-owner’s account value after 30 years changes with the rate of share price increase: For context, a 10% average annual share price is roughly what the public stock markets have returned over time. But it’s certainly possible for a successful private company to outperform this benchmark. Increased company success has a dramatic effect on our employee-owner’s account balance. Roughly speaking, a 1% annual increase in the company share price leads to changes in final account value of between $100,000 to $200,000. That’s huge! One very important caveat to all this is that no company’s share price is guaranteed to go up, and it’s possible that a series of events could lead to any company going bankrupt, which would make those company’s shares worth zero. For employee-owners, this risk is offset by the common practice that shares are paid for out of company profits, with the employee-owners not putting in any of their own money. And of course no financial gain comes without risk. What does it take for our employee-owner to become a millionaire? If their company is able to achieve a 20% rate of return over 30 years, they would retire with well over $2 million. Not every company will accomplish this, but it’s not without precedent. WinCo Foods managed to grow at roughly this rate from 1986 to 2014, a 28-year period. The minimum required performance for our employee-owner to see a seven-figure account balance is 16% annual share price growth over 30 years. Make no mistake, that is a solid performance that not every company can accomplish. But I personally have spoken to multiple employee-owned companies that have turned in this record, or better. Ultimately it comes down to how the company performs, which is something that every single employee-owner can impact through their ideas and their effort. Connecting the success of the company and the success of the employee through wealth building is perhaps the biggest reason we see employee ownership as a win-win for business and people. Note: The examples provided in this article are solely for illustrative purposes only and should not be relied upon in any way, nor should be construed as an appraisal, legal, financial, tax, or other professional advice.
Read More ▶Three Inspiring Examples of Employee-Owners Building Life-Changing Wealth
January 20, 2023
There’s a lot to like about employee ownership. By changing the relationship between the company and employee, broad-based ownership creates alignment up and down a business. Engagement is stronger, people are more motivated, relationships are more durable, and companies are more successful. But of all the positive aspects of employee ownership, the most inspiring is how it can build life-changing wealth for employee-owners. Wealth building for working people ties the employee ownership community together. Every employee ownership structure, including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), and Direct Share Ownership, builds broad-based wealth through some combination of capital accounts and profit sharing. It was the common thread in over 250 conversations about the meaning of employee ownership we had when we set our certification standards. And while there are decades of research in support of this model, it’s the individual stories of wealth-building that inspire people to join the employee ownership movement. In this article we will touch on three inspiring examples of employee-owners building life-changing wealth. We also consider the question of scale: are these examples cherries we have picked or would a wide-spread transition to employee ownership change millions of lives? WinCo Foods WinCo Foods was founded in 1967 by Ralph Ward and Bud Williams. The no-frills, warehouse-style grocery store focused on low prices soon grew from the original location into a small chain in the Pacific Northwest. In 1985, after the passing of Mr. Ward, the company transitioned to employee ownership. Several decades of success later, the company now has over 20,000 employee-owners across 135 stores in 10 states. Broad-based ownership translated WinCo’s growth into impressive wealth-building for employee-owners. In 2014, the 130 workers at a single store in Corvallis, Oregon had a combined $100 million in ownership wealth and across the company over 400 front-line employees were “millionaire grocery clerks”. According to the most recent Department of Labor 5500s, in 2020 WinCo’s employee-owners had a combined $3.6 billion in company stock. Cathy Burch’s story illustrates the impact of WinCo’s employee ownership. Cathy joined WinCo in 1991 and worked a number of front-line jobs such as stocking shelves, doing checkout, and ordering inventory. Over the years she received small allocations of company stock and benefited from compound interest as WinCo’s share price grew at roughly 20% a year. Ownership helped Cathy build a level of wealth and security that is unimaginable for most in her position. “I have almost $1 million in stock”, she said when interviewed for Forbes in 2014, “If I wanted to, I could retire right now.” Springfield Remanufacturing Company Springfield Remanufacturing Company (SRC) is another iconic example of employee ownership building broad-based wealth. Founded in 1983 as a distressed spin-out from International Harvester, SRC’s unique approach to open-book management was born of necessity. With an 89:1 debt to equity ratio and an interest rate of 18%, the new company had to find a way to get every single employee thinking about how to save every possible dollar. The laser focus created by approaching business as a team sport not only helped SRC pay off it’s initial loan and led to a leading opening-book management system known as The Great Game of Business, but it created a lasting culture that has continued to drive SRC’s growth. Today the company has 10 divisions with over 2,000 employee-owners. SRC’s approach to employee ownership rests on thinking like an owner but also benefiting like one. The company has been 100% employee-owned from the very beginning, allowing employees like Rick Hedden to own a piece of the action. The shares Rick earned over 36 years as an employee-owner allowed him to retire early at 59 to focus on his hobbies and his family. “I wanted to be able to retire while I was healthy and I could afford it,” Rick said when interviewed for an article on the Great Game of Business Blog, “my wife and I are also enjoying having more time with each other without any pressure or timelines.” Rick is not alone. Employee ownership has helped transform SRC from a struggling spinout with a share price of 10 cents into a thriving conglomerate with a share price of over 420 dollars. Along the way, SRC has paid out over $100 million to retiring employee-owners and created 30 millionaires. New Belgium Brewing New Belgium Brewing offers a different perspective on how employee ownership can help build life-changing wealth. Founded in 1991, the Colorado-based brewer helped popularize craft beer with it’s flagship Fat Tire Ale. New Belgium transitioned part of the business to employee ownership in 2000 and then went to 100% in 2013. Unlike WinCo and SRC, New Belgium is no longer employee-owned. The company was sold to Little Lion World Beverages in 2019. How can a company that’s no longer employee-owned be an inspiring story? In an interview with Forbes, Katie Wallace, the Director of Social and Environmental Impact, shared, “ultimately, the sale was a great success story for employee ownership in that more than 300 New Belgium coworkers will receive more than $100,000 in retirement money, with some coworkers receiving quite a bit more. Over $190 million will have been paid out to hundreds of families by the time the deal closes. This is money that founders of a more traditional business could have easily pocketed themselves, so it’s an excellent win for wealth equality.” New Belgium shows that employee ownership not only creates tremendous upside, but it also creates downside protection in the case of a sale. While it’s bittersweet to see a company transition out of employee ownership, sales are a fact of business ownership and there will always be times where the best outcome for the owners is to sell. In the case of New Belgium, the sale was put in front of the employee-owners and a majority voted in favor of the deal. Does Employee Ownership Scale? WinCo, SRC, and New Belgium show how employee ownership helps workers share in the value they create and access that value in the case of a sale. But perhaps these three exceptional companies are not representative of the broader employee ownership experience. To understand the economy-wide impact of a transition to employee ownership, Certified EO teamed up with Professor Ethan Rouen at Harvard Business School to answer a simple question: what would happen if every company in America employee-owned? Analyzing data from the Federal Reserve, we demonstrated that an employee-owned economy would be an absolute game-changer. Median household wealth would rise from $121,760 to $230,076 and wealth inequality would drop to historic lows. Our analysis shows that the inspiring stories we highlighted are certainly great outcomes, but if every company in America were employee-owned, they would be common. Today these stories are a light that can guide us as we seek to change more lives through employee ownership.
Read More ▶We Must Build an Employee-Owned Economy
December 6, 2022
When it comes to work, America is at a crossroads. Good jobs are getting harder to find as roles are increasingly contracted, gigged, and automated. Companies are being gobbled up through consolidation or closing down as the baby boom generation retires. On their own these trends have made work more precarious for millions. Together they are undermining the foundational premise of America as a land of opportunity. While momentum leads to a future of work that is ever more precarious, it is not too late to change course. We can create shared prosperity by building an employee-owned economy. Today’s challenges are decades in the making. The period just after World War 2 marks a high-point for job security. Large firms like General Motors and IBM sought dedicated employees and offered them stable careers. When companies did well, people did well. But globalization, offshoring, and technological change have broken that connection. Productivity and wage growth moved in lockstep from 1948 to 1978, but since then they have decoupled with productivity growing four times faster than average compensation. Companies are getting more valuable, but fewer of those gains are being passed on to workers. The rise of the gig economy on the heels of the financial crisis has accelerated this trend. If you work for Uber you might be a programmer with generous compensation that includes stock options, but more likely you are a driver, ping-ponging around town for the lowest price the algorithm thinks you’ll take while covering expenses out of your own pocket. The gig economy has exploded since 2009 with 23M Amricans (9% of adults) working a gig job in 2021. As more jobs are demoted to gigs, millions of Americans will find the skills they have spent years honing are no longer enough to make ends meet. What will these people fall back on? For many there is no safety net at all. According to the Federal Reserve’s Survey of Consumer Finances, in 2019 13 million households had negative net worth. And for others, a small net might be there but they can’t afford the fall. Just 4 in 10 Americans have sufficient savings to cover an unforeseen expense of $1,000. Looking at fifty years of increasingly precarious work combined with a snapshot of Americans’ finances, one thing is clear: millions could soon find themselves with no financial or human capital. This is a major concern for every single American. Since our country’s founding, leading thinkers have recognized that a healthy republic is rooted in the broad-based ownership of property. Founding Fathers such as Thomas Jefferson saw the small landowner as the bedrock of our democracy because owning land made them independent and active citizens. This was also the guiding principle behind the Homestead Act of 1862, which created 4 million family farms. These ideas and policies focused on land because in the agricultural economy of the 1700s and 1800s, farmland was the most important asset. Today, the most important asset is business ownership. Owning a business is how great fortunes are built, just look at Elon Musk or Bill Gates. According to the 2019 Survey of Consumer Finances, business ownership is the largest asset class, with public and private companies accounting for over $32T of wealth, much more than home equity ($19T). And it’s not just the household names who own stock. Among the Top 1%, the largest asset is ownership of private businesses, accounting for 38% of their portfolio with average value of $10.8 million, and the second largest asset is public company stock, accounting for 18% of their portfolio with average value of $5.1 million. Yet, the bottom 50% of households by wealth hold a combined 0.25% of all business ownership, just $1,347 per household. Securing the future of our democracy means expanding the opportunity of business ownership. Thankfully we have a solution that has been tested and proven for 50 years: broad-based employee ownership. The idea that employees should hold some stock in their employer has a long history, but it got meaningful traction with the creation of the Employee Stock Ownership Plan (ESOP) in 1974. Today, there are over 5,600 employee-owned companies operating in every industry and state. They range in size from 5 people to over 220,000 and employ over 2.5 million people. Employee-owned companies like Publix Supermarkets, Wawa, and Bob’s Red Mill represent the blueprint for modernizing the American dream. Employee ownership changes the relationship between the company and employee by ensuring that everyone who works at a company has reasonable access to the benefits of ownership. Making employees into employee-owners helps them build wealth. A 2021 study by the National Center for Employee Ownership found the average employee-owner had roughly $67,000 more in retirement wealth, compared to workers at non-employee-owned firms. And this can scale. Our research calculates that if every American company became employee-owned the net worth of the bottom 50% by roughly $81,000 on average. Employee ownership also benefits workers the first day they walk in the door by creating a better working environment. Broad-based ownership aligns everyone around a unified goal and creates a shared purpose. Alignment increases commitment, trust, and accountability. This leads to stronger relationships, closer connections with coworkers, and increased job stability. Finally, employee ownership makes companies stronger. Decades of research show that broad-based ownership combined with high-involvement management systems increases key performance indicators like productivity, revenue growth, and employee engagement. Even large private equity firms are beginning to see employee ownership as a way to supercharge engagement and increase business performance. Taken together, the evidence on wealth building, culture, and company performance show employee ownership is a win-win-win: it’s good for workers, good for business and good for our country. Transitioning to an employee-owned economy would create shared prosperity that benefits all Americans, but we must act now. A start would be converting a portion of the 2.3 million companies owned by Baby Boomers, the youngest of whom will hit 65 in 2029. But we must think bigger than just business conversion. An employee-owned economy represents an entirely new way to view work and a new relationship between the company and employee. We must make it easy for people who understand this difference to find employee-owned companies. We must coordinate and amplify the voice of our movement to share the advantages of employee ownership far and wide. And we must set a standard that people know and trust to defend against the inevitable pretenders. The need for broad-based business ownership has never been greater. The time has come to build an employee-owned economy.
Read More ▶The Top 25 Cities for Employee Ownership 2022
October 5, 2022
Employee ownership changes the relationship between business and community. When every employee has an ownership stake, companies become rooted in place. The wealth they build flows through the local economy, the jobs they create are more stable, and they become more involved in service. Employee ownership is a win for workers, businesses and communities. That’s why we are proud to announce a new list highlighting the Top 25 Cities for Employee Ownership. The Top 25 Cities for Employee Ownership showcases the cities in America that have done the most to foster a positive environment for employee ownership. Collectively they are home to 569 employee-owned companies. From small towns to large metros, these cities range in size from 17,000 people to over 850,000. From the coasts to the heartland, they represent 15 states with a range of cultures and political orientations. The diversity of cities in the Top 25 highlights the broad appeal of employee ownership. Our list is the result of a comprehensive effort to identify every employee-owned business in America, including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), and broad-based equity compensation plans such as stock options. By combining our unique certification data with government fillings, news articles, website visits, and direct phone conversations we have curated the only up-to-date list of every employee-owned company in America. Our ranking of the Top 25 takes into account both the number and the concentration of employee-owned companies in each city. We restrict ourselves to all cities with at least five employee-owned companies and look at the total number and the per capita density. Our methodology creates a balanced list that puts every city on an even playing field. If you’re curious to see how many employee-owned companies are in your town, search your city name in our Directory of Employee-Owned Companies. #1 - FARGO, NORTH DAKOTA Fargo, North Dakota is the #1 city for employee ownership in 2022! The state’s most populous city, Fargo is home to 26 employee-owned companies, including Dakota Supply Group, Border States Electric Supply, Fargo Glass & Paint Company, and Scheels. Fargo is the only city in America in the top 25 for both the total number and per capita density of employee-owned companies. With a population of roughly 125,000, Fargo has one employee-owned company for every 4,800 residents. Top industries for employee ownership in Fargo include distribution, manufacturing, and engineering. #2 - BERKELEY, CALIFORNIA Berkeley, California is ranked #2 for employee ownership in 2022! Known for all things counter-culture, Berkeley is home to 22 employee-owned companies, including Mal Warwick Donordigital, Arizmendi Bakery, Sun Light & Power, and Alchemy Collective Cafe. Berkeley is the only city other than Fargo to be in the top 30 for both the total and per capita density of employee-owned companies. Berkeley also stands out as the #3 city for Worker Cooperatives with 18. Berkeley is partnering with Project Equity and the Sustainable Economies Law Center to help local businesses stay locally-owned and preserve their legacy by becoming employee-owned. #3 HARRISBURG, PENNSYLVANIA Harrisburg, Pennsylvania is the 3rd best city for employee ownership in 2022! The capital of Pennsylvania, Harrisburg is home to 17 employee-owned companies, including HB Global, D&H Distributing, and Schaedler Yesco Distribution. With a population of 58,000, Harrisburg has one employee-owned company for every 3,400 residents, making it the #9 city for per capita employee ownership. #4 - CINCINNATI, OHIO Cincinnati, Ohio is the #4 city for employee ownership in 2022! Sitting on the Ohio River, Cincinnati is home to 32 employee-owned companies, including Al. Neyer, Intrust IT, Ohio Valley Electrical Services, Parallel Technologies and The Motz Corporation. Top industries for employee ownership in Cincinnati include IT consulting, manufacturing, electrical contractors, and wholesalers. #5 - MINNEAPOLIS, MINNESOTA Minneapolis rounds out the Top 5 as the #5 overall city for employee ownership! With 40 employee-owned companies, Minneapolis is also the #5 city in terms of total number of EO businesses. H2I Group, Kurt Manufacturing Company, Brin Glass Company and RSP Architects all call Minneapolis home. The city has taken an active approach to fostering employee ownership. In 2016, it expanded its Business Technical Assistance Program (B-TAP) to include services aimed at supporting the development of new Minneapolis co-operatives by offering feasibility training and technical assistance for businesses interested in converting into a cooperative. #6 - MADISON, WISCONSIN Madison, Wisconsin is the #6 city for employee ownership. The state capital of Wisconsin, Madison is home to 27 employee-owned companies, including Vita Plus, Bock Water Heaters and Just Coffee Cooperative. This midwestern university town stands out because of the Madison Cooperative Development Coalition (MCDC), a City of Madison-funded initiative to form worker cooperatives through co-op education, technical assistance, outreach to potential or existing business owners, and $10,000 seed grants to cooperative startups. #7 - LYNCHBURG, VIRGINIA Lynchburg, Virginia is ranked #7 for employee ownership in 2022. Lynchburg is home to 15 employee-owned companies, including Electronic Design & Manufacturing, Scott Insurance, and Wiley & Wilson. Lynchburg is one of just nine cities in the Top 50 for both the total number and per capita number of employee-owned companies. Top industries for employee ownership in Lynchburg include insurance, engineering, and HVAC services. #8 - SPRINGFIELD, MISSOURI Springfield, Missouri is the 8th best city for employee ownership in 2022. One of just three cities in the top 40 for both total and per capita employee-owned companies, Springfield is home to 21, including SRC Holdings, Ollis/Akers/Arney, Penmac Staffing, Global Recovery Group, NewStream Enterprises, DeWitt & Associates, and South Barnes Development Company. SRC is one of the most well-known employee-owned companies in America because its unique approach to open book management led to the creation of The Great Game of Business, which thousands of companies now use to increase engagement and business performance. A number of Springfield companies are also behind the recently launched Missouri Center for Employee Ownership. #9 - ST. LOUIS, MISSOURI St. Louis, Missouri is the #9 city for employee ownership in 2022. The gateway to the west, St. Louis is home to 28 employee-owned cities, including Balke Brown Transwestern, Roeslein & Associates, USA Mortgage, and Graybar Electric. Top industries for employee ownership include real estate, construction, and engineering. #10 - OAKLAND, CALIFORNIA Oakland, California rounds out the top ten as the #10 ranked city for employee ownership. Known as “The Town,” Oakland is home to 35 employee owned businesses, the 8th most of any city. Companies in Oakland include MN Builders, Menke & Associates, Paramount Export Company, Berrett-Koehler Publishers, Coracao Chocolate, and New Harbinger. Oakland is also home to a number of non-profit organizations that promote employee ownership, including the National Center for Employee Ownership and The Democracy at Work Institute. #11 - HONOLULU, HAWAII Honolulu, Hawaii is the #11 city for employee ownership in 2022. The state capital and largest city in Hawaii, Honolulu is home to 30 employee-owned companies, including Generator & Power Systems LLC, Island Pacific Distributors, Roberts Hawaii, and The Solaray Corporation. Top industries include engineering, wholesale, and HVAC services. #12 - GRAND RAPIDS, MICHIGAN Grand Rapids, Michigan is ranked #12 for employee ownership in 2022. Located just east of Lake Michigan, Grand Rapids is home to 21 employee-owned companies, including Custom Profile, Progressive AE, Axios, and Lumbermen’s. Grand Rapids is one of just nine cities in the Top 50 for both total number and per capita number of employee-owned companies. Top industries for employee ownership in Grand Rapids are engineering, construction materials, and manufacturing. #13 - HUNTSVILLE, ALABAMA Huntsville, Alabama is the #13 city for employee ownership in 2022. The most populous city in Alabama, Huntsville is home to 20 employee-owned companies, including Ignite, OASYS, Inc, Pinnacle Solutions, Radiance Technologies, and Torch Technologies. Top industries for employee ownership in Huntsville are engineering, defense contracting, aerospace, and IT consulting. #14 - FAIRFAX, VIRGINIA Fairfax, Virginia is the 14th best city for employee ownership in 2022. Just outside of the nation’s capital, Fairfax is home to 10 employee-owned companies, including Miklos Systems, Fairfax Lumber & Hardware, and Zimmerman Associates. With a population of 23,429, Fairfax has one employee-owned company for every 2,343 residents, making it the #5 city for per capita employee ownership. Fairfax is also the 2nd smallest city on the Top 25. Major industries for employee ownership in Fairfax are consulting and engineering. #15 - SAN FRANCISCO, CALIFORNIA San Francisco, California is the #15 city for employee ownership in 2022. “The City by the Bay” is home to 50 employee-owned companies, making it #3 in terms of total number. Inheritance Funding Company, Matarozzi Pelsinger Builders, Gensler, Rainbow Grocery Cooperative, Recology, and Swinerton all call San Francisco home. With a population of 866,606, San Francisco is the largest city on the Top 25. The City and County of San Francisco and the San Francisco Small Business Development Center are partnering with Project Equity to educate locally owned businesses on the advantages of converting to employee ownership. San Francisco was also part of the Democracy at Work Institute’s 2019-2020 Shared Equity in Economic Development (SEED) Fellowship, an initiative focused on creating worker cooperatives. #16 - PORTLAND, MAINE Portland, Maine is ranked #16 for employee ownership in 2022. Known for lighthouses and seafood, Portland is home to 11 employee-owned companies, including Systems Engineering, Artist & Craftsman Supply, Stroudwater Associates, and Wright-Ryan Construction. With a population of 66,803, Portland has one employee-owned company for every 6,073 residents, making it the #21 city for employee ownership per capita. Top industries for employee ownership in Portland are professional services and construction. #17 - ATLANTA, GEORGIA Atlanta, Georgia is the #17 city for employee ownership in 2022. The capital of Georgia, Atlanta is home to 30 employee-owned companies, including Benning Construction Company, Ogden Forklifts, Choate, EPI Breads, and Techwood Consulting. Atlanta is the #30 city for the total number of employee-owned companies, and several initiatives are underway to spread the model in Atlanta. The Atlanta Wealth Building Initiative (AWBI) and Project Equity have partnered to create a business retention strategy focused on employee ownership. Atlanta was also part of the Democracy at Work Institute’s 2018-2019 Shared Equity in Economic Development (SEED) Fellowship, an initiative focused on creating worker cooperatives. 3rd largest city #18 - ROANOKE, VIRGINIA Roanoke, Virginia is the 18th best city for employee ownership in 2022. Nestled in the Blue Ridge Mountains, Roanoke is home to 12 employee-owned companies, including R&K Solutions, Lanford Brothers Company and The Branch Group. Top industries for employee ownership in Roanoke include professional services, engineering, and construction. #19 - LOUISVILLE, KENTUCKY Louisville, Kentucky is the #19 city for employee ownership in 2022. Kentcuky’s largest city and the host of one of the most famous horse races in the world, Louisville is home to 34 employee-owned companies, including Advanced Lifeline Services, Hall Contracting of Kentucky, Master’s Supply and S&D Group. With a population of 615,924, Louisville is the second-largest city among the Top 25. Louisville was also part of the Democracy at Work Institute’s 2019-2020 Shared Equity in Economic Development (SEED) Fellowship alongside San Francisco and Atlanta. #20 - SANTA FE SPRINGS, CALIFORNIA Santa Fe Springs, California rounds out the Top 20 as the #20 city for employee ownership in 2022. Located in Los Angeles County, Santa Fe Springs is home to eight employee-owned companies, including Great Western Sales, LeFiell Manufacturing Company, and MATT Construction. With a population of 17,349, Santa Fe Springs is the smallest city in the Top 25. Santa Fe Springs has one employee-owned company for every 2,169 residents, making it the #4 city for employee ownership per capita. #21 - WALNUT CREEK, CALIFORNIA Walnut Creek, California is ranked #21 for employee ownership in 2022. The fifth city from California to make the list, Walnut Creek is home to 10 employee owned companies, including Brown and Caldwell, AEI Consultants, Diablo Magazine, HPGI Holdings, and Heffernan Insurance Brokers. Walnut Creek has a long history of employee ownership. Brown and Caldwell is one of the older ESOPs in the country as they established their program in 1962 — that’s 60 years of being employee-owned! #22 - PITTSBURGH, PENNSYLVANIA Pittsburgh, Pennsylvania is the #22 city for employee ownership in 2022. Known as the “Steel City,” Pittsburgh is home to 20 employee-owned companies, including Standard Air & Lite Corporation, Aerotech, Garrison Hughes, and Ryan Construction. In 2019, The Pittsburgh City Council voiced strong support for employee ownership. This was followed by the creation of a Citywide Task Force taking a comprehensive approach to contacting business owners about converting to employee ownership. The Task Force represents a broad group that includes the Office of Mayor William Peduto, the Office of the Lt. Governor, the PA State House, the Pittsburgh City Council, the Pennsylvania Center for Employee Ownership, the Democracy at Work Institute, Chatham University, and many Pittsburgh-based businesses. #23 - PORTLAND, OREGON Portland, OR is the 23rd best city for employee ownership in 2022. Known as the “City of Roses,” Portland is home to 32 employee-owned companies, good enough for #13 in terms of total number of EO businesses. Breakside Brewery, DKS Associates, Durham & Bates Insurance, and Hunter-Davisson all call Portland home. Top industries for employee ownership in Portland include architecture, engineering, and construction. #24 - YORK, PENNSYLVANIA York, Pennsylvania is ranked #24 for employee ownership in 2022. York is home to eight employee-owned companies. With a population of 43,907, York is the third-smallest city on our list. York has one employee-owned company for every 5,488 residents, making it the #18 city for employee ownership per capita. Top industries for employee ownership in York are engineering, HVAC, and manufacturing. #25 - ASHEVILLE, NORTH CAROLINA Asheville, North Carolina rounds out the list as the 25th best city for employee ownership in 2022. Asheville is home to 10 employee-owned companies, including John W. Abbott Construction, MB Haynes, and Moog Music. Top industries for employee ownership in Asheville include manufacturing, construction, and printing. OTHER NOTABLE CITIES Two cities outside of the Top 25 are worth mentioning. The city with the most employee-owned companies is none other than New York. However, as the most populous city in the country with 8,804,190 inhabitants, New York has just one employee-owned company for every 82,282 inhabitants, making it the #181 city per capita (fourth from the bottom of the list). The city with the highest density of employee-owned companies is Zeeland, Michigan. Zeeland has six employee-owned companies and 5,522 residents, giving it one business for every 920 people. But it is just #150 in terms of total businesses. While both are remarkable, New York and Zeeland showcase why we chose an approach that considers both absolute and per capita number of employee-owned companies. We are proud to showcase the cities in America that have done the most to foster a positive environment for employee ownership. These cities are setting the standard for how to encourage employee ownership. At Certified Employee-Owned, we will continue to update our Directory of Employee-Owned Companies and create visibility for successful approaches to building an employee-owned economy. Note: All data on number of employee-owned companies comes from the Certified Employee-Owned Directory as of 6/16/2022. All data on city populations comes from the U.S. Census Bureau for the year 2020.
Read More ▶What Does “Employee Ownership” Mean?
September 20, 2022
Employee ownership is in the spotlight. State and federal legislation has recently advanced to promote the model. Articles discussing the advantages of employee ownership have appeared in Forbes, Nonprofit Quarterly, and Harvard Business Review. Mainstream investors are even starting to take notice with large private equity firms exploring how employee ownership could enhance their acquisitions.But what exactly does “employee ownership” mean? The big idea behind employee ownership is to distribute the rights and responsibilities of business ownership more broadly. Generally these rights and responsibilities fall into three categories.1. Ownership & MoneyAll forms of employee ownership involve expanding financial opportunity. Workers build wealth through participation in capital accounts and/or profit sharing. Common examples include stock granted through an Employee Stock Ownership Plan (ESOP), shares bought through an Employee Stock Purchase Plan (ESPP), equity upside accessed through grants of stock options, and cash received through profit sharing distributions from an Employee Ownership Trust (EOT) or Worker Cooperative. Regardless of the structure, employee ownership creates alignment by ensuring that employees benefit financially when their company is successful. A key feature across all forms of employee ownership is that participation must be ”broad-based.” Access to ownership must be open to everyone at the company and the concentration of ownership must be limited. In some cases employees are expected to pay for their ownership stake, but more frequently it is a benefit of employment. The broad-based nature of employee ownership is critical to creating the environment of trust and respect that characterizes successful examples of the model.Stories of workers building life-changing wealth present an inspiring case for employee ownership. Two examples covered in a past post illustrate this well. First is WinCo Foods. After 40 years as an ESOP, the 130 workers at a single store in Corvallis, Oregon had a combined $100M in ownership wealth, and across the company, over 400 front-line employees were “millionaire grocery clerks.” Second is Springfield Remanufacturing Company (SRC). From 1983 through 2017, the company paid nearly $100M in distributions to its employee-owners. SRC’s CEO, Jack Stack highlights one person who “started here in 1983 making $7.50 an hour [and] has now got $1.2 million.” While the plural of “anecdote” is not “data,” most of the ESOPs I have spoken to that are at least 25 years old have created front-line millionaires. To demonstrate that these stories are not one-off examples, but instead point to the transformative potential of employee ownership, I teamed up with Professor Ethan Rouen of Harvard Business School to answer the question: what would happen to wealth inequality if every American business became employee-owned? We found that this shift would reduce wealth inequality to recorded lows and the wealth of the median household would nearly double from $121,760 to $230,076. The potential to build broad-based wealth is the common thread connecting all corners of the employee ownership community. 2. Ownership & Operational Decision MakingThe second major aspect of ownership is operational decision making. Many employee-owned companies set up practices that expand employees’ voice in setting day-to-day processes, encourage them to generate new ideas, or even increase their role in setting the company’s overall direction. Increased involvement in decision making often goes hand-in-hand with education about financial literacy and open book management. The idea is that providing workers with increased agency, access to information about the business, and the knowledge required to use this information can help them better think and act like owners, which will then improve company performance. These practices are often implemented as part of a comprehensive system such as The Great Game of Business, GRITT, or the Entrepreneurial Operating System. As an added benefit, these systems can create a more engaging and enriching environment for employees, which can also increase retention. Academic research has found substantial benefits associated with high-involvement decision making practices at employee-owned companies. Studies over the past few decades have observed higher sales growth, profitability, and survivability. A key takeaway from this work is that financial ownership alone is not enough to alter company performance. These research findings align with intuition. A company's performance is the result of all the actions taken each day by everyone at the company. Because of this, changes in behavior are necessary to see changes in outcomes. Giving employees shares of stock without creating the conditions for behavioral change seems unlikely to impact company performance. That’s why many see employee involvement in decision making as going hand-in-hand with the financial aspects of employee ownership. 3. Ownership & GovernanceThe third major aspect of ownership is governance. At some companies, workers play a role in nominating, electing, and potentially serving on the board of directors. The most common way to implement employee involvement in formal governance is through a worker cooperative. While details vary by company, the key feature of a worker cooperative is that worker-owners elect the board democratically, on a one-person, one-vote basis. In theory, this creates a situation where workers control the organization, and management is formally accountable to the workforce. Based on our list of employee-owned companies, I estimate that currently around 7% of employee-owned companies have some employee involvement in governance.Employee Ownership in PracticeIn practice there are as many different approaches to employee ownership as there are employee-owned companies. For many, employee ownership is purely about wealth-building. But others see the financial aspects of ownership and the day-to-day involvement in decision making as inseparable. The specific meaning of employee ownership can even evolve within the same company over time. For example, a company might begin their employee ownership journey through a succession plan for a departing founder and with an initial focus on long-term wealth building. But as debt is paid down, shares are distributed, and employees start to see what’s at stake, leadership might become interested in increasing financial literacy and opening up the books to help employees become even more engaged as owners. Once we recognize the different facets of employee ownership, a new question arises: what does it mean to say a company is “employee-owned?” This might seem like the same question we asked at the beginning of the article but, as we’ve discussed previously, having some employee ownership doesn’t necessarily make a company employee-owned. Consider a company that distributes a small portion of its stock to executives, or a company that provides increased voice without providing any sort of financial benefit. Are they “employee-owned?”Creating a simple and clear definition of employee-owned was the first major challenge we faced when launching Certified Employee-Owned. After speaking with roughly 250 members of the community, including trade associations, service providers, and of course companies, we arrived at a definition that focused specifically on the financial aspects of employee ownership. We felt this big tent view would maximize our ability to build support for the model while ensuring that employees at companies we certify have the opportunity to build life-changing wealth. You can read the full account of how we set a standard meaning for “employee-owned” here.
Read More ▶How Exits Impact Employee-Owners: an Interview With Michelle Waterhouse of Hopkins Printing
August 11, 2022
The common thread that connects all corners of the employee ownership community is wealth building for working people. Broad-based ownership gives every employee the opportunity to earn the benefits of business ownership, namely access to profit sharing and shares of company stock. Shares in particular represent a major opportunity because they can grow exponentially through compounding. To utilize the wealth they have built, employee-owners must eventually turn their shares into cash. That typically happens in one of two ways. At companies that are operating as employee-owned in perpetuity, the company will buy shares back from employees when they leave or retire. But if an employee-owned company ever decides to sell, employee shares are purchased as part of the acquisition. While the sale means one less employee-owned business, it also means access to potentially life-changing wealth for the employee-owners. To highlight the dynamics involved in the sale of an employee-owned business, we connected with Michelle Waterhouse, the HR Director of Hopkins Printing, an employee-owned company that was sold January 31, 2022 after nearly 15 years as an ESOP. TD: Thank you for taking the time to share your story with us. Why don’t we start with a bit of background on the company.MW: Hopkins Printing started in the garage of Jim and Arnie Hopkins in the mid 1970’s. They opened a copy center in downtown Columbus and then moved into color printing in the 80’s. From there they grew to their current location with a 100,000 square foot facility, operating 3 shifts with 100 employees. TD: How & when did you get involved in the company?MW: My parents are Jim and Arnie Hopkins, so I have worked at the company since I was a teenager. After graduating college in 1990, I took an office role. As our employee count kept growing, I moved more into an HR role. I also brought back a new husband from college, Roy Waterhouse. He and my dad got along well and he has been here 32 years as well. Roy was the president and CEO before the sale, focusing on sales and marketing.TD: And when did you first consider employee ownership? MW: In 2007 we had entered into an LOI with a publicly traded printing company. We soon figured out that it would not be a good fit for our employees. My father Jim had already heard of ESOPs and saw it as a way to reward the employees who had helped build the company from the early days. So we reached out to a well-known ESOP attorney here in Columbus to learn more about what it would mean for our company and our employees. TD: How did becoming employee-owned impact your business?MW: Looking back, I would say the most notable impact was employee retention. Employees realized that they had skin in the game here. This was a stock that they owned and they could help impact the share price every year. Low turnover is very good for a business in terms of employee knowledge and the cost of training new employees. TD: When did you first start thinking about a sale?MW: We were approached in May of 2021 by a company that owns another very large printing company in the United States because they wanted to get into the type of commercial work that Hopkins Printing does. Our first concern was: what will this mean for our employees? We asked to see their employee handbook and their benefit package. I’m sure this was different than any other merger in their history because we wanted to talk about employees before we talked about money. We were pleasantly surprised that their handbook was very similar to ours and they provided more PTO than we did. And their benefits were much better than we were able to provide for our employees. After we learned these two things, we started moving forward with the process. TD: What was the consideration process like?MW: It was a good process. We spent 5 months working out the details with the new company before we announced anything to the employees. Both sides spent those 5 months exchanging information to make sure it was going to be a good fit. Our ESOP Trustee and ESOP attorneys helped bridge the gap and helped us navigate all the considerations needed to sell an ESOP company. In November we called an all-employee meeting on a Tuesday afternoon. Our president explained to everyone about the call he received in May and he also explained a little about the company that was buying us and what they were looking for. Our founder, who was 81 at the time, told the employees why he thought it was a good idea. He explained how it’s hard to be a small business right now with everyone trying to recover from the impact of the pandemic, all of the regulations, rising health care costs, and so on. He explained that the next generation of leadership is in their 50’s and will be able to continue and help make it a smooth transition. As HR Director, I shared that the new company’s CEO told us that all employees would keep their jobs and that I had been tasked with hiring 25 additional employees to help with the increased work they planned on sending to our plant. I also explained the main perks of their benefit package. Our COO then explained what it would mean for their ESOP accounts and that they would all have a vote in this transaction. If they all decided that they didn’t want to sell the company, we would continue being an ESOP and being in business together doing great things. If we did sell the company, all shareholders would receive 95% of their share value around 90 days after the transaction closed at a premium over our most recent share price that was calculated as of 12/31/2020. We then handed every employee a 16 page document that detailed the financial aspects of the sale and their ESOP accounts. All shareholders had one week to research the new company and ask us any questions. We then had a follow up meeting with all employees and our Trustee to answer any questions. They all then had one week to send their vote to our Trustee. We have 30,000 shares and the vote was 29,922 yes and 78 no. TD: How has the sale impacted your people and your company? MW: Many employees owned stock worth hundreds of thousands of dollars. Our concern was that they would get their money and quit their jobs, so we spent the next few months coaching about saving, investing, tax penalties for taking it out early, etc. We brought in our 401k advisor as an option for employees to be able to talk with someone they have known for years. Everyone was finding financial advisors and planning for this large influx of money. Shareholders received 95% of their account value as a distribution in mid-May. They will receive the remaining amount due after the company has closed out all financial issues and collects the 5% holdback from the sale. We were very happy that no one quit their job! Most everyone saw it as an opportunity to set their retirement up and transferred the money to another retirement vehicle to avoid taxes and penalties. Some of our employees had debts that had been hanging over their heads for years, or wanted to pay off credit cards, their car, or their house. Those employees took out some of the money to set themselves up better financially in the present, and then moved the rest aside for a more comfortable retirement. Because we were such a strong company here in our city, the new company kept our name, so we are still Hopkins Printing. They have been sending us work for our plant and their benefits have been amazing. In addition, their support with HR, IT, production, supplies, and safety, to name a few, has been a big help to us as a small company. It’s fun being part of a growing, large company. The key to this sale was that we didn’t need to sell and we took the time to make sure it was win-win-win. It really did work out well for our ESOP, for the new company, and for everyone’s future. The above questions and answers were exchanged via email in July 2022. Some answers have been edited for clarity and brevity.
Read More ▶How Many Businesses Are There in America and What Does it Mean for Employee Ownership?
July 14, 2022
Building an employee-owned economy can create a more prosperous future. Employee-owners benefit from higher retirement savings and increased job security, while employee-owned companies anchor jobs in local communities. That future begins by increasing the number of employee-owners. Some companies start out as employee-owned, but the vast majority convert after operating for some time under a different ownership structure. Since launching Certified Employee-Owned in 2017, we have spoken to over 1,000 employee-owned companies. Fewer than 10 began as employee-owned. It’s difficult to generalize, but based on our experience we think that over 95% of employee-owned companies were created through conversion. The importance of conversion means that advocates of employee ownership need a good understanding of the broader business landscape. The best source on the size and number of American businesses is the Census Bureau’s Statistics of U.S. Businesses (SUSB). In this article we will use the SUSB to analyze the business landscape and draw implications for the employee ownership community. Our key takeaways include: The number of companies large enough for employee ownership has been steadily rising since 2011 and now stands at just over 1.3 million. Most Americans work at large companies, but most US businesses are small. To drive a dramatic increase in the number of employee-owners, the employee ownership community needs a strategy for converting businesses with over 500 employees. Three sectors represent major opportunities for growing employee ownership: Health Care & Social Assistance; Accommodation & Food Service; Professional, and Scientific & Technical Services. Total Number of American Businesses According to the U.S. Small Business Administration, there are 33.2 million American businesses in 2023, but there’s a catch. That number is skewed because it counts every single corporation, including those setup by independent contractors and even shell companies created solely to hold an asset. There’s no bright line between a legal corporation and what a normal person would consider a business, but a reasonable breakpoint might be having at least one paid employee. That is the line used by the SUSB, and in 2019 there were 6,102,412 businesses meeting this criterion. The concept of employee ownership only starts to have real meaning when a company includes multiple non-founder employees. While there are exceptions, most companies exploring employee ownership have at least 10 total employees. A company of this size will generally have the resources that enable conversion while also seeing benefits from a formal employee ownership structure. Using the SUSB’s size categories, we found that in 2019 there were 1,311,698 businesses with at least 10 employees. We estimate that there are roughly 6,000 employee-owned companies in America (our Directory provides an up-to-date list of all the ones we know about). That means that employee-owned companies are just 0.5% of the total number of companies with at least 10 employees. The chart above shows how the number of companies with at least 10 employees has changed since 1999. It dipped slightly at the turn of the millenium following the dotcom crash, increased steadily in the early 2000s before dipping again after 2006 and plunging after the 2008 financial crisis. After hitting a bottom of 1,173,373 in 2011, the number of companies with at least 10 employees has seen year-over-year increases every year through 2019. For the employee ownership community, it’s encouraging to see that the number of companies that are large enough to consider employee ownership has been steadily rising for almost a decade. Size Distribution Analyzing the SUSB size categories, we see that US businesses have a skewed distribution of size. While most firms are small, most people work at large employers. Roughly 30% of private-sector workers work at the 1,112 firms with over 10,000 employees, while the 4,790,714 businesses with fewer than 10 employees account for less than 10% of private sector employment. In other words, firms large enough to support an employee ownership program account for over 90% of the private-sector workforce. The skewed distribution of firm size presents a tradeoff for employee ownership advocates: do we focus on the number of companies that are employee-owned or the number of people working at employee-owned companies? If we are interested in maximizing the number of employee-owned firms, we’re going to have the most success focusing on small companies. But if we are interested in maximizing the total number of employee-owners, the emphasis should be on the big companies. This tradeoff is mirrored in the change in firms and employment from 1999 to 2019. The bulk of firm and employment growth was driven by large firms. Over this time period, the total number of firms with at least 10 employees increased 9% and employment at these companies increased 22%. Almost all of the increase in the number of firms was driven by companies with less than 500 employees, while 75% of the change in employment was driven by firms with 500 or more employees. The trend is clear: while there are more companies now than 20 years ago, the bulk of new private sector employment over the past two decades has been due to growth of larger firms. Industry Distribution Finally, we use the SUSB industry categroies to analyze changes in employment and total number of firms by industry. It’s worth noting that all categories here are based on the North American Industrial Classification System (NAICS) and that the SUSB excludes railroad employees, agricultural production employees, and most government employees. The following chart shows employment by Industry for 2019 for all firms with at least 10 employees. Below is a table with both employment and number of firms by industry. Note that the number of firms doesn’t align exactly with the previous section, likely because some firms operate in multiple industries. The four largest industries by employment - Healthcare & Social Assistance, Retail Trade, Accommodation & Food Services, and Admin, Support & Waste Management - are all part of the service sector. Manufacturing, once the backbone of the American economy, is now the fifth largest sector by employment. Construction and Professional, Scientific & Technical Services, and Other Services (excluding Public Admin) are notable for having a high number of firms of a smaller average size. Finally we look at how the number of firms and employment by industry have changed over the last two decades. This chart above shows the percent change from 1999 to 2019. Dramatic increases of over 50% employment occured in many service sectors including: Accommodation & Food Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation, Professional, and Scientific & Technical Services; and Admin, Support & Waste Management. Several industries show signs of consolidation with increasing employment and decreasing number of firms: Information; Finance & Insurance; Retail Trade; and Wholesale Trade. Finally, the dramatic decline in manufacturing can be seen in a 26% decrease in the number of firms and 28% decrease in total employment. Combining current firm size and employment with growth trends can help identify large and growing industries which would be good to target for the expansion of employee ownership. Based on the above charts, Health Care & Social Assistance; Accommodation & Food Service; and Professional, Scientific & Technical Services merit further investigation.
Read More ▶New Partnership: Certified Employee-Owned & The Healthcare Anchor Network
May 24, 2022
Certified Employee-Owned and The Healthcare Anchor Network (HAN) are excited to announce a new partnership to help over 1,000 hospitals identify procurement opportunities with employee-owned companies! HAN is a nationally recognized collaboration of health systems leveraging their purchasing, hiring, and investing power to improve health and well-being by addressing economic and racial inequities in the communities they serve. HAN works to achieve a critical mass of health systems adopting the anchor mission, a proactive commitment to leverage their economic, political, and human capital to drive equitable, local economic impact. HAN was launched in May 2017 and today represents over 70 health systems with more than 1,000 hospitals, $75 billion of purchasing power, $150 billion of invested assets, and almost 2 million staff. HAN members include Boston Children’s Hospital, Cleveland Clinic, Kaiser Permanente, and University of California San Francisco. “We’re delighted to have the support of Certified Employee-Owned's knowledge of the field to help our members know the Certified Employee-Owned companies in their service areas and look for opportunities to do business with them,” stated David Zuckerman, President & Founder, Healthcare Anchor Network. Employee ownership is increasingly recognized as a way to reduce wealth inequality and strengthen local economies. By procuring products and services from employee-owned companies, anchor institutions will create good jobs while benefiting from increased service quality. To date, the main challenge preventing anchors from accessing this win-win opportunity has been the difficulty of finding employee-owned companies. As the only national certification focused on employee-owned companies, Certified Employee-Owned is perfectly positioned to help anchor institutions find employee-owned suppliers. Our standards of significant and broad-based employee ownership span all types of employee-owned companies including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), Equity Compensation Plans, and more. Since our launch in September 2017, we have been working to build a list of verified employee-owned companies as well as tools to help people explore employee ownership, for example our Directory of Employee-Owned Companies. This partnership represents the first step to creating widespread purchasing preferences for employee-owned companies. The initial focus with HAN will be on helping their health systems identify current vendors who are employee-owned and educating HAN members on the benefits of doing business with employee-owned companies. Some health systems may be interested in taking the next step of integrating employee ownership into their process for identifying future vendors and filling open contracts. The experience and success stories from this partnership will help us build toward future purchasing engagements and could provide the proof-of-concept required for state or even federal purchasing preferences for employee-owned companies. To learn more about how we are working with HAN to promote purchasing from employee-owned companies, register for our upcoming webinar on July 21st.
Read More ▶Capital Accounts and Profit Sharing: The Two Ways Employee-Owners Build Wealth
April 27, 2022
Employee-owned companies can build life-changing wealth for working people. Take WinCo Foods. After roughly 40 years as an ESOP, the 130 workers at a single store in Corvallis, Oregon had a combined $100M in ownership wealth and across the company, over 400 front-line employees were “millionaire grocery clerks.” Or consider Springfield Remanufacturing Company (SRC). From 1983 through 2017, the company paid nearly $100M in distributions to its employee-owners. CEO Jack Stack highlights one person who, “started here in 1983 making $7.50 an hour [and] has now got $1.2 million.”While not every employee-owner will become a millionaire, research shows that these remarkable examples highlight broader trends. A 2018 study of S Corporation ESOPs found that employee-owners have nearly double the average retirement wealth of non-employee-owners ($170,326 versus $80,339). In 2021 we used data from the Federal Reserve to show that if every American business became employee-owned, wealth inequality would be reduced to historic lows and the wealth of the median household would increase by over $100,000.How are employee-owned companies helping people build this much wealth? While there are many ways to create and run an employee-owned company, there are only two ways that these businesses put money in the pockets of their workers: capital accounts and profit sharing. Capital AccountsCapital accounts are distinct accounts hold company stock directly or derivatives such as stock options on behalf of individual employees. Employee Stock Ownership Plans (ESOPs), Employee Stock Purchase Plans (ESPPs), and stock options are all forms of capital accounts. Capital accounts are typically funded through an initial grant or annual contributions. Funding might come from the company, as with an ESOP, or from the employee-owner, as with an ESPP. Today there are over 5,800 employee-owned companies using capital accounts. Capital accounts benefit from compound growth.The value of the stock or derivative in a capital account is tied to the performance of the company through the share price. Assuming the business is performing well, the company’s share price will increase and the value of the capital account will go up. Importantly, the increase in value from share price growth applies both to contributions as well as prior share price growth, which creates compound growth.Compound growth is how employee-owners can build life-changing wealth. Specifics vary, but many reasonable scenarios that reflect real-world practice lead to six-figure wealth building, and, as we saw with WinCo and SRC, companies that are employee-owned for 25+ years usually have front-line millionaires. While compound growth has tremendous potential, the key ingredient is time. Drawing the account down will erase the compounding. Building substantial wealth typically requires the capital account is untouched for 20 years or more. Eventually employee-owners must turn their capital account back into cash. Because employee-owned companies are private, there are generally two options: the company buys the share back or the accounts are cashed out when the company is sold. Due to the nature of business valuation, companies almost never have enough cash on hand to buy back all outstanding shares. This leads to a situation at mature capital account companies called “share recycling” where shares are bought from selling owners and recycled back to new owners. This is a time-tested practice that can continue for a long time if both the employee ownership plan and the company are managed well. Profit SharingProfit sharing is when a company regularly distributes some portion of profits back to employees as cash. The key feature of profit sharing is liquidity. Profit sharing is typically done on a quarterly or annual basis, and once the profits are in and the benefit is calculated a check is cut to qualifying employee-owners within a few weeks.Profit sharing can be implemented in a variety of ways, but not all forms of profit sharing are ownership. For example, a plan that exists solely at the discretion of management can provide a nice benefit, but it is not ownership because it can be taken away by management without any sort of monetary compensation to the employees. To be considered ownership a profit sharing plan must have a legal claim on part or all of the business and it must have codified distribution rules that are broad-based. Profit-sharing benefit plans that own shares of company stock can meet these criteria, but in our experience these plans rarely own enough of the company for it to meet the definition of employee-owned. Currently we see just two types of employee-owned companies where the primary wealth building mechanism is profit sharing: Worker Cooperatives and Employee Ownership Trusts (EOTs). We know of roughly 400 companies operating through these two vehicles today.Tradeoffs Between Capital Accounts and Profit SharingThe structure of capital accounts and profit sharing leads to a fundamental tradeoff between wealth building and liquidity. Wealth BuildingThrough compounding, capital accounts help employee-owners build more wealth than profit sharing. Specifics vary, but typically after 30 years compound growth is responsible for at least 80% of the value of a capital account (explore scenarios here). If the account owner had instead received their annual allocations of stock as cash payments, for example through profit sharing, they would have received just one fifth of the value of the capital account over time. I doubt that any employee-owner has ever built a million dollars in wealth through profit sharing alone.Liquidity (Timing of Payments)While capital accounts have greater wealth-building potential, profit sharing provides money sooner, and money today is more useful than money later. Most capital account structures at employee-owned companies own illiquid private-company stock, so employee-owners have limited withdrawal options. On top of that, regularly withdrawing a portion of your capital account will diminish or even completely offset the benefits of compounding. Delayed gratification is inherent in the concept of capital accounts just as liquidity is inherent in the concept of profit sharing. The ultimate point of employee ownership is to create better lives for working people and if people have immediate needs, waiting might not be an option. While profit sharing builds less total wealth, it provides greater liquidity and that tradeoff might be worth it for some people, especially those making a lower income. Investing in GrowthThe differences between profit sharing and capital accounts have implications for how a company invests in growth. Capital accounts are fundamentally long-term and therefore can be much better for alignment. Theoretically, profit sharing can disincentivize investing in the business, since investments reduce profit now in exchange for profit later. For example, buying an expensive piece of equipment that would increase profitability multiple years in the future. If employee-owners have a strong need for money now, will they still make that investment?Why Not Both?Considering the advantages of both capital accounts and profit sharing it’s tempting to ask: why not do both? In theory you could split the ownership of a company in any way between capital accounts and profit sharing. In practice, we find that companies tend to do one or the other. We haven’t counted exactly, but I would estimate that over 95% of employee-owned companies either have capital accounts or they are owned 100% by an EOT or Worker Cooperative.There is a major exception: discretionary profit sharing. While not actually ownership, profit sharing that exists at the discretion of management shares the positive characteristics described above, specifically the immediacy of payment and the attendant culture-building benefits. For this reason, we see many companies with capital accounts implement a discretionary profit sharing plan as well. Typically it has a quarterly or annual cadence and the primary focus is to strengthen the connection between the success of the company and the success of the employee-owner. Wealth building for working people is the common thread running through all corners of the employee ownership community. Different companies in different industries employing different people will all find their own balance in the tradeoff between capital accounts and profit sharing. What’s important is to consider what’s right for your company and your people.This article was originally posted 4/27/22 and was updated on 5/9/2023. Special thanks to Jon Shell of Social Capital Partners who read an early version of this post and suggested the point about “Investing in Growth”. That section is adapted from his email. -----------------After publication, Christopher Mackin of Ownership Associates sent a thoughtful reply detailing a notable example of a non-US company that uses both profit sharing and capital accounts, as well as a template for implementing a dual structure. With permission, I am including the content of the message here for interested readers."Your statement that worker cooperatives and EOT's are where profit sharing employee ownership models reside is a bit problematic. You are factually correct about EOT's and most American worker cooperatives. But it is also the case that perhaps the most prominent single example of what you are calling Capital Accounts is in the Mondragon worker cooperative system of - yes - internal capital accounts. David Ellerman and the rest of us at the Industrial Cooperative Association worked hard in the 1970's and 1980's to develop model by laws for worker cooperatives (pps.16-20) that specify how to establish that internal capital account model which David thought through independently of Mondragon. When we traveled there in the late 1970's we were amazed to find a real world example of scale that made use of the very same ideas - a membership share of stock the price of which was set and adjusted only for inflation separated from individual internal capital accounts into which annual profits were contributed and losses deducted. These same accounts obviously also compound wealth.It is my guess that only a small percentage (say 10%?) of American worker cooperatives make use of the internal capital account system used in Mondragon. That is or will become a problem for them when the pressure to pay out cash is perceived to be a zero-sum decision on the part of members (cash for persons or undifferentiated investment in the cooperative). The internal capital account system breaks through that problem and does so in a way that is actually superior in my mind to the ESOP structure which has the benefit of capital accounts but the pressure to value those accounts using net present value methodologies."
Read More ▶Defining “Employee-Owned”: How We Set Our Certification Standards
March 21, 2022
At Certified Employee-Owned, our mission is to accelerate the creation of an employee-owned economy by building support for employee ownership. Inspired by Fair Trade and Great Place to Work, Kramer Sharp and I started Certified EO in 2016 because we thought certification would coordinate and amplify the voice of the employee ownership movement. As we have grown to over 500 Members, we have seen how employee ownership is an idea that takes many different forms at different companies. Given all the nuance, it’s important to articulate what it means to certify a company as “employee-owned” and how we set this standard. This article walks through our journey to create a specific and clear definition of employee-owned and details what we learned along the way:Why it’s important to define “employee-owned”Themes from over 250 community conversationsWealth building unites our communitySetting a standard that people know and trustWhy it’s Important to Define “Employee-Owned”The idea for Certified EO grew out of my work as a PhD student at Stanford Business School. I joined the Organizational Behavior department in 2013 with an interest in understanding alternative business structures. In my first year, my advisor pointed me in the direction of the academic work on employee-owned companies. I was excited to learn about the model and thrilled that research demonstrated the potential for increased firm performance and better outcomes for employees. While absorbing this work, I had frequent conversations about what I was learning with a long-time friend, Kramer Sharp. The more we talked about employee ownership the more interested we became in this unique business model. We were delighted to find that many companies we knew and loved were employee-owned. We were also inspired by the passionate service providers powering this transformative model. But we kept coming back to the same question: Why had we never heard of this before?Reflecting on our experience, it became clear that a major obstacle for the employee ownership community was lack of visibility. Finding employee-owned companies was a challenge. Some employee-owned companies were talking about it, but many were not. Worse, some companies were saying they were employee-owned when clearly they were not. There was no official list and the closest thing we could find required digging through government fillings. But even that list was incomplete. There simply was no easy way to find employee-owned companies.Kramer and I began thinking about ways to create a bridge between employee-owned companies and the general public. Looking at Fair Trade and Great Place to Work, we realized that certification is a proven model for coordinating and amplifying the voice of a movement. Combining the reach of employee-owned companies would make them the employer of choice for millions of job seekers and make being employee-owned a major differentiator with clients and consumers. But creating a certification program means creating a standard that people know and trust. So before we could start building towards our vision we had to define “employee-owned.”Themes From Over 250 Community ConversationsAt this time, the ESOP model was already over 40 years old. Kramer and I knew that we had to ground the definition of “employee-owned” in the practices and views of the community. We started by connecting with the major trade associations including the National Center for Employee Ownership, The ESOP Association, Employee-Owned S-Corporations of America, and the US Federation of Worker Cooperatives. We attended conferences to speak with service providers including lawyers, accountants, bankers, and consultants who create and administer employee ownership plans. And of course we contacted as many employee-owned companies as possible. Over the course of 2016 we had over 250 conversations about what it means to be employee-owned. It’s no surprise that we heard a variety of perspectives. For some companies employee ownership is about giving everyone a financial stake in the success of the business. WinCo Foods, for example, has had broad-based employee ownership for over 30 years and in the process has created millionaire grocery clerks. Other companies see employee ownership as encompassing both share ownership and employee involvement in operational decision making, for example open-book management. A few companies even see employee ownership as including a say in important governance issues. For example, Worker Cooperatives give their worker-owners equal votes in electing the board of directors. These three aspects of ownership - money, operational decision making and governance - were the common threads running through our conversations with companies and advocates. Wealth Building Unites Our CommunityIt took about five conversations for us to see that it would be impossible to come up with a single definition that would include everything that everyone saw as important. While money, operational decision making, and governance were the common threads, everyone had a different opinion on their relative importance. So we started looking for a baseline. What were the aspects of employee ownership that would be broadly seen as essential? If a company did everything BUT one particular practice, would they still be viewed as employee-owned? With this shift in perspective, one element stood out: wealth building for working people. Everyone we spoke to mentioned wealth building as a critical aspect of employee ownership. We heard many stories of long-time employee-owners in front-line roles building substantial wealth. Companies with diverse employee ownership structures including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), and the various Direct Share Ownership Models all include some combination of profit sharing and capital accounts that help employees build wealth. Others pointed out how broad-based wealth building aligns with the fundamental promise of America as a land of opportunity. While operational decision making and employee involvement in governance can be positive, the wealth building for working people stands apart in importance for individuals as well as our country. Setting a Standard That People Know and TrustWith our direction focused on wealth building, we arrived at a set of standards that captured the common practices and was aligned with historical legislation:Ownership: at least 30% of the company must be owned by employees. Shares held by company founders do not count towards this threshold.Access: reasonable access to ownership must be open to every employee.Concentration: the ownership held in line with #1 and #2 must not be over-concentrated. This is controlled either through a cap on the maximum distribution or a maximum ratio between maximum and median distribution.It’s important to acknowledge that some things get lost when you simplify a complicated concept like employee ownership down to a binary of certified or not. For example, we’ve spoken with a company where employees hold a 10% stake that meets the access and concentration components of our standards. They were quick to point out that it might be much better to own 10% of a successful company than 100% of a failing business. There is merit to that point, but at the same time, 10% is not enough to call a company “employee-owned.” Others have told us that they felt our standards were too low. Why not set the bar at a majority ownership stake? There are a few strategic reasons for an employee-owned company to keep ownership below 50%, for example maintaining government purchasing preferences. The 30% threshold is also aligned with historical legislation, for example Section 1042 of the Internal Revenue Code. Our research shows that if every business became 30% employee-owned, wealth inequality would decrease to historic lows and the wealth of the median household would increase nearly four times. While 30% might sound low to some, it’s a very high bar. According to the U.S. Census Bureau there are roughly 1.3 million firms in America with at least 10 employees. We estimate there are approximately 6,000 companies that meet our certification standards. That means fewer than 1 in 200 businesses met our definition of employee-owned - less than half of one percent! Ultimately the goal of Certified Employee-Owned is to accelerate the creation of an employee-owned economy. Creating a standard that people know and trust is a means to an end. What matters most is that our standard is clear, easy to understand, and applied consistently so that it creates a bridge between the companies and the community. Uniting our voices through certification will help millions of Americans see the value of this model, create a resource that benefits our community, and increase the number of employee-owned companies. There has never been a more important time to build an employee-owned economy, and we’re thrilled that we can do our part through certification.This article was originally posted 3/21/22. It was updated on 1/5/2023.
Read More ▶The Difference Between “ESOP” and “Employee-Owned”
February 16, 2022
If you’ve spent time learning about employee ownership, then you’ve certainly heard of Employee Stock Ownership Plans, or ESOPs. In fact, ESOPs are so common among employee-owned companies that many people use these terms interchangeably. You might be surprised to learn that, while ESOPs are certainly the most common type of employee-owned company, there is actually quite a bit of daylight between the two concepts. Not all ESOPs are employee-owned, and not all employee-owned companies have an ESOP. This article walks through the differences between “ESOP” and “employee-owned” including: Quick Background on ESOPs Not all ESOPs are Employee-Owned Many Employee-Owned Companies Don’t Have an ESOP Defining “Employee-Owned” Stronger Together Through Certification Quick Background on ESOPs ESOPs have grown dramatically since their creation in 1974 as part of the Employee Retirement Income Security Act (ERISA). According to the Department of Labor, there are currently around 6,300 companies with an ESOP. They range in size from dozens of employees to hundreds of thousands and operate in every industry imaginable. The ESOP’s popularity is due to a number of factors, including nearly 50 years of proven success, strong tax benefits, and a fantastic community of advocates and service providers. By law, ESOPs are extremely inclusive. The basic idea behind an ESOP is that it is a trust that owns company stock on behalf of a broad-based group of employees. Shares are usually allocated to eligible employees annually, and the eligibility criteria employees must meet to receive a share allocation are very open. Typically employees need to work 1,000 hours in a year to participate, an average of only 20 hours per week. Additionally, ESOP shares are paid out of company profits and are allocated to employees at no cost. These open criteria drive high participation and ensure that workers at ESOP companies benefit when their employer is successful. Not all ESOPs are Employee-Owned While all ESOPs are broad-based, the percentage of total outstanding stock owned by the ESOP varies dramatically from company to company. There is no minimum, and in practice we’ve seen this range anywhere from a fraction of a percent to 100%. Of course, an ESOP that owns even just a tiny piece of a large and successful company can provide a great benefit to employees, especially since employees are not paying for the shares out of their wages. But there is a categorical distinction between a company operating a small broad-based, share-ownership plan as a benefit and a company where the employees own a substantial portion of the stock, perhaps even 100%. In other words, there is a difference between having an ESOP and being employee-owned. Further clarity can be gained by looking at a specific example. In the publicly available Form 5500 data, the largest company indicating they have an ESOP is Walmart. To be sure, that ESOP must be a nice benefit for some of the company's employees. However, it probably is not having the same impact as the ESOP at 100% employee-owned WinCo Foods, which has made many front line employees into millionaires. WinCo is just one of many inspiring stories of employee-owners building life-changing wealth. That’s why it’s important to remember that having an ESOPs doesn't always mean a company is employee-owned. Many Employee-Owned Companies Don’t Have an ESOP While the ESOP model is the most popular and successful structure used by employee-owned companies, it is not the only option. There are a number of alternative ways to implement significant and broad-based employee ownership, including Worker Cooperatives, Employee Ownership Trusts (EOTs), Employee Stock Purchase Plans (ESPPs), and equity compensation plans like stock options. Companies can even implement employee ownership through direct share ownership, though there are often benefits to using a more formal structure. Alternative structures play an important role in building an employee-owned economy because not every company is a good fit for an ESOP. Some selling owners want more flexibility. Others might want to ensure employees have a strong voice in governance. But perhaps the most promising use case for alternative structures is helping smaller companies become employee-owned. The setup and administrative costs of an ESOP can be prohibitive for companies under 40 people. In recent years we’ve seen a growing number of small companies using EOTs, direct share ownership, and even stock options. This encouraging trend could greatly expand the employee ownership community. Defining “Employee-Owned” If not all ESOPs are employee-owned and many employee-owned companies don’t have an ESOP, then it begs the question: How do you define employee-owned? Answering this question was priority number one when we started Certified Employee-Owned. Our vision from the very beginning has been to use certification to accelerate the creation of an employee-owned economy. Programs like Great Place to Work and Fair Trade show that certification builds support by amplifying the voice of the movement. We quickly realized that, while companies with different employee ownership structures have distinct administrative and legal concerns, they would all benefit from the visibility created by certification. With this big-tent vision in mind, we set out to create a definition of “employee-owned” that could be applied to any ownership structure. We searched extensively for historical precedent and had over 250 conversations with companies and advocates. Ultimately, we identified financial ownership as the common thread running through legislation and views of advocates from across the space. With that in mind, we focused our definition on three concepts: Ownership: At least 30% of the company must be owned by employees (excluding founders) Access: Reasonable access to ownership must be open to every employee Concentration: Ownership among employees cannot be too concentrated Stronger Together Through Certification It’s important to emphasize that the point of this definition is not to determine who is a “good” or “bad” company. Ultimately we are focused on what certification can accomplish for the employee ownership community and a necessary part of any certification program is a specific and clear delineation between who does and does not meet the standards. Setting a standard people know and trust has intrinsic value, but it also enables the creation of shared resources. Our Directory of Employee-Owned Companies is an up-to-date list of every company we know of that, to the best of our knowledge, meets the above definition of employee-owned. The directory create a simple way for people to find employee-owned companies, but it’s only possible with a clear definition of employee-owned. Our certification mark is the strongest way for a company to communicate that they meet high standards of significant and broad-based employee ownership. Over one hundred Members are using the mark on their websites and major companies like WinCo Foods and Litehouse are using the mark on widely circulated products and packaging. The foundation of this branding initiative is the trust created by third-party certification. Certification is changing the game for the entire employee ownership community, including ESOPs, and that’s why it’s important to understand the difference between “ESOP” and “employee-owned”. This article was originally posted 2/16/22 and was updated on 3/28/2023.
Read More ▶10 Reasons Business Owners Have Transitioned to Employee Ownership
January 20, 2022
Since launching Certified Employee-Owned in 2017, I’ve spoken to over 1,000 employee-owned companies. These conversations are the highlight of my day. I love hearing stories about entrepreneurs starting companies and I'm always curious to learn how founders have come across employee ownership. Spending so much time talking to entrepreneurs and leaders in the employee ownership space has shown me a few interesting trends. Most notably, the vast majority of companies I have spoken with did not start out as employee-owned, but transitioned after many years in business. I haven’t kept exact numbers, but I would estimate this is the case with over 95% of the companies I know. While there are as many reasons for conversion as there are founders, there are a few trends that stick out. Here are 10 reasons that stand out as to why business owners have made the transition to employee ownership, along with a paraphrased story for each one that captures the essence of the journey: 1. Keeping it in the family“ Starting this company was my dad’s greatest accomplishment and growing the business has been my life’s work. But none of my kids were interested in taking the reins. I know what can happen when a company is taken over by a strategic or private equity and I didn’t have the heart to do that to people I’ve known my entire life. Transitioning to 100% employee-owned was my way of keeping the company in the family.” 2. Giving our owners partial liquidity“ To me going 30% employee-owned was a no-brainer. I got some liquidity, and now my people have a direct stake in the action, so the company is doing even better. As a bonus I have a built in succession plan. I don’t have any plans to step back, but you never know what will happen and it’s great to have that option.” 3. Continuity through succession“ This company was her baby, she wasn't going to sell it. She really liked the idea of leaving the company in the hands of the employees, because the alternative was going the way of other companies that she had seen bought out and changed completely.” 4. Staying an anchor in our community “Our founder was deeply concerned with what would happen to the local economy. He knew that if he sold to a strategic buyer, they would move the headquarters and maybe even the factory. We’re the biggest employer in the area so that would have devastated the town. By transitioning to EO our founder kept us local and kept the town alive.” 5. Start-up business sharing equity “A lot of start-ups share equity with talented employees in exchange for under-market wages, but my vision for sharing equity in the company was different. I wanted all my dedicated employees to have skin in the game from the beginning. The set formulas for sharing equity with only early employees didn’t work for me.” 6. Aligning employees at a time of growth “After years of start-up hustle, we were finally poised to take our company to the next level, and employees were going to be critical to our growth. We wanted to align the interests of owners and employees by giving employees a stake and a better understanding of what makes our company tick.” 7. Finding alternatives to private equity“ Private equity started knocking at our door and it made us think critically about the future of our company. We believe in our mission, our people, and the services we provide and are not willing to compromise those to get the highest dollar. Some of our shareholders were pressuring us for liquidity, and we needed to figure out how to provide that without overburdening the company with debt.” 8. Mission-driven at our core “We have been mission-first since day one. I started the business to help us transition to a sustainable future. Growing the company and making money has always been an outcome of our success, not a goal. I transitioned us to employee-owned to lock that mission-focus into our DNA. I want everyone here to have a stake in our future and to feel as bought-in as I feel as the founder.” 9. Feeling alone at the top “I did not expect to become a solo entrepreneur running a company by myself. I always wanted to do this as a team. I don’t have a co-founder anymore, and I want everyone to be more bought in and engaged as co-owners of this business.” 10. Democracy at work“ We wanted to be a worker cooperative from the start. It is the only corporate structure that aligns with our values - that each worker should have equal say in the governance of the company. We are in this together and that should be reflected in every aspect of our structure and culture. ”Are you a business owner looking to learn more about employee ownership? A great place to start is our overview.
Read More ▶11 of the 100 Largest Private Companies in America are Employee-Owned
April 13, 2021
Forbes curates a number of interesting lists, among them a list of the largest private companies in America [https://www.forbes.com/largest-private-companies/list/]. Today I was looking through this list and thought: how many of these companies are employee-owned? Using our new Directory [https://www.certifiedeo.com/companies], I found that 11 of the 100 largest private companies on the Forbes list are likely to be employee-owned. Two of them are Certified EO Members: * #23 Wawa * #53 WinCo Foods Nine others have a broad-based ownership program that, to the best of our knowledge, owns at least 30% of the company: * #5 Publix Super Markets * #55 Graybar Electric * #73 Sammons Enterprises * #74 Hensel Phelps Construction * #86 Schreiber Foods * #94 McCarthy Holdings * #96 Swinerton * #97 Kehe Distributors The fact that over 10% of the largest private companies in America are employee-owned is a powerful proof point that employee ownership works! The question for those of us that want to see employee ownership grow is: what would it take to get this number from 11 to 50?
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